Whats at Stake for Lobbying Interests in Next Years Tax Fight?

If the White House and Congressional leaders decide to pare back the IRS code next year, tax writers from both parties will have no shortage of special-interest goodies to throw on the bonfire.

In the new White House report “The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform,” to achieve lower tax rates overall, Members are encouraged to simplify a dizzying array of carve-outs, deductions, write-offs and credits, which critics argue unfairly benefit targeted industries big and small.

“It’s this mutant blob where the only way you can find your way through is with guides,” one tax reform advocate said. “They’ve created their own games and there’s so many piled on top of each other that it’s falling apart.”

But simplifying the tax system also means agitating a number of powerful industries, which will no doubt exert their will to make sure they don’t wind up on the wrong side of any deal.

Mortgage Interest$572.9 billion

The National Association of Realtors is leaving little to the imagination as to how loud the trade group will yell to keep the federal itemized tax deduction for mortgage interest.

After the White House’s deficit commission recommended exempting second homes and replacing the deduction with a nonrefundable credit, Realtors President Ron Phipps issued a statement reminding lawmakers of its army of “For Sale”-sign-wielding foot soldiers.

“The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years,” Phipps said. The deduction “must not be targeted for change. NAR is actively engaged on behalf of the nation’s 75 million home owners and 1.1 million Realtors to ensure that the current deduction is not modified.”

The Realtors conducted an online poll in October that suggested almost 75 percent of homeowners, as well as two-thirds of renters, approved of the tax provision.

State/Local Taxes$250.2 billion

When the White House and lawmakers rewrote the tax code nearly 25 years ago, state and local tax payments were a target. It’s uncertain whether the deduction will be on the chopping block this time around, but news reports from yesteryear detail griping by mayors and governors whose governments imposed high taxes — and whose populations stood to lose the most.

According to a list tabulated by the Tax Foundation, high-wage-earners in New York and New Jersey now pay nearly 8 percent or more in state income taxes, while residents of states such as Texas and Florida pay no income taxes at all.

Larry Jones, assistant executive director at the U.S. Conference of Mayors, suggested that all the parties involved may not end up speaking with one voice on the state and local tax deduction matter. “Lowering the rates in general keeps more money circulating in our economy,” he said, but for now, the mayors group is staying quiet.